USD Index appears offered and challenges 103.00, looks at debt ceiling

The index extends the corrective decline and puts 103.00 to the test.
Negotiations over the debt ceiling will take centre stage later in the week.
The FOMC Minutes, PCE will be in the limelight this week.

Pablo Piovano FXStreet

The greenback, in terms of the USD Index (DXY), starts the new trading week slightly on the defensive and near the 103.00 neighbourhood.

USD Index focuses on dent ceiling, FOMC

The greenback so far trades with small losses following the opening bell in the old continent on Monday, extending at the same time the corrective move after hitting fresh multi-week highs near 103.60 in the second half of last week.

In the meantime, investors are expected to closely follow another round of negotiations (the last one?) to reach an agreement over the US debt ceiling issue, while speculation of a potential rate hike at the next Fed gathering on June 14 continues to pick up pace.

There are no scheduled data releases in the US docket on Monday, while St. Louis Fed J. Bullard (2025 voter, hawk), Richmond Fed T. Barkin (2024 voter, centrist) and Atlanta Fed R. Bostic (2024 voter, hawk) are all due to speak in a week where the FOMC Minutes (Wednesday) and the PCE (Friday) will be in the limelight.

What to look for around USD

The index now comes under some downside pressure and revisits the key 103.00 region on Monday.

In fact, DXY gives away part of the recent uptick to fresh 2-month highs in the 103.60/65 band amidst diminishing signals that the Fed will probably pause its normalization process in the near future, all in response to the steady resilience of key US fundamentals (employment and prices mainly).

Favouring a pause by the Fed, instead, appears the extra tightening of credit conditions in response to uncertainty surrounding the US banking sector.

Key events in the US this week: Flash Manufacturing/Services PMI, New Home Sales (Tuesday) – MBA Mortgage Applications, FOMC Minutes (Wednesday) – Initial Jobless Claims, Chicago Fed National Activity Index, Pending Home Sales, Advanced Q1 GDP Growth Rate (Thursday) – PCE/Core PCE, Durable Goods Orders, Flash Goods Trade Balance, Personal Income/Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.03% at 103.16 and faces the next support at the 55-day SMA at 102.53 seconded by 101.01 (weekly low April 26) and finally 100.78 (2023 low April 14). On the other hand, the break above 103.62 (monthly high May 18) could open the door to 105.76 (200-day SMA) and then 105.88 (2023 high March 8).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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